What I Look for as a Business Lawyer When Reviewing a Franchise Disclosure Document

When a prospective franchisee is considering buying into a franchise system in Ontario, one of the first key legal requirements that comes into play is the delivery of the Franchise Disclosure Document, commonly referred to as the FDD. Under Ontario law (Arthur Wishart Act), a franchisor must provide the FDD to a prospective franchisee at least 14 days before the franchisee signs the franchise agreement or pays any form of consideration to the franchisor. Importantly, the 14-day clock begins to run the day after the FDD is delivered.

It is usually around this point that clients reach out to a business lawyer for guidance. By then, they have received not only the FDD and the franchise agreement but often a number of ancillary documents as well. These may include general security agreements, non-disclosure or confidentiality agreements, and certificates confirming that independent legal advice has been provided. Even for a relatively small franchise system, the total documentation can span anywhere from 250 to 500 pages. My role as a business lawyer is to make sense of all this information and help the client assess the legal and commercial implications of what they’re about to sign.

First Steps in Reviewing the Franchise Agreement and Franchise Disclosure Document (FDD)

The first step in my review is a full read-through of the FDD from beginning to end. I don’t skim it. I go through the document in detail, highlighting it in three colours as I go. Green highlights indicate terms or clauses I consider standard and acceptable. Yellow is used for provisions I think the franchisee should consider more carefully or fully understand before moving forward. Red is reserved for unusual terms, contradictions, or items that raise concern and may warrant further inquiry or negotiation. Once the FDD review is complete, I compare the terms of the franchise agreement against those disclosed in the FDD. The law requires the FDD to accurately reflect the actual terms of the franchise agreement, and when I see inconsistencies, I flag them for the client.

Typically, I schedule a Zoom meeting with the client to walk them through both the FDD and the franchise agreement. I share my screen, and we go through the documents page by page. The goal is not only to explain what the documents say, but also to assess whether the content aligns with the client’s understanding and expectations. Franchising is a major commitment, and my job is to ensure that there are no surprises hiding in the fine print.

What I look for When Reviewing the Franchise Agreement and FDD

When reviewing an FDD, there are several core elements I focus on to ensure the client understands not only the legal framework they are entering into, but also the practical and financial implications of the franchise relationship. Some of the key items I examine include:

A detailed breakdown of the costs involved, so the client fully understands what they are paying for and when
The initial term of the agreement and any renewal provisions, to make sure they align with the client’s expectations
Any inconsistencies or contradictions within the documents
The reporting requirements imposed on the franchisee throughout the term of the agreement
The conditions for transferring the franchise and whether the franchisor can unreasonably withhold consent
The termination provisions and whether they are balanced and consistent with industry norms
The franchisor’s corporate background and litigation history
The scope of the franchisee’s territory and whether any form of exclusivity is granted
The franchisor’s financial statements, to evaluate their financial health and stability
The specific obligations imposed on the franchisee under the agreement
The scope of intellectual property rights being granted and any limitations on their use
Advertising and marketing requirements, including contributions to national or regional ad funds
Restrictions on suppliers or the products that can be sold, and whether these are reasonable
Risk disclosure statements and any waivers or acknowledgments the franchisee is asked to sign

Each of these points gives valuable insight into the nature of the franchise relationship, and I make a point of walking my client through them carefully before any decision is made.

Common Red Flags in Franchise Disclosure Documents

When reviewing a Franchise Disclosure Document (FDD), I pay close attention to clauses that may signal potential problems for a prospective franchisee. While every franchise system is different, here are some common red flags I often encounter:

One-sided termination clauses: Some agreements give the franchisor broad discretion to terminate the franchise, even for minor breaches or without a meaningful cure period. This creates uncertainty and leaves the franchisee vulnerable.
Unclear or restrictive renewal rights: Watch for renewal terms that are either vague or allow the franchisor to impose new conditions at their sole discretion. This can undermine the long-term value of your investment.
Mandatory spending obligations: Franchisees are often required to spend a certain amount on advertising, inventory, or upgrades, but the agreement may not clearly define how that spending is calculated or enforced.
Personal guarantees and security agreements: It’s common for franchisees to be asked to personally guarantee the obligations of the business or sign a general security agreement. This puts personal assets at risk and should be carefully considered.
Broad indemnity provisions: Some agreements require the franchisee to indemnify the franchisor, even in situations where the franchisor may have been at fault. These clauses can expose the franchisee to significant liability.
Unfavourable dispute resolution clauses: Pay attention to where and how disputes are handled. Arbitration requirements in distant jurisdictions or waivers of class action rights can make it harder to enforce your legal rights.
Restrictions on public statements: Some agreements include confidentiality or non-disparagement clauses that limit what franchisees can say about the system — even if they’ve had legitimate issues. These may be a red flag, especially in systems with a history of complaints.
Attempts to override statutory rights: If the FDD or agreement appears to limit protections under Ontario’s Arthur Wishart Act, that’s a serious concern. These rights can’t be waived, but their attempted exclusion suggests aggressive franchisor drafting.

Spotting these issues early allows my clients to make informed decisions and avoid surprises after signing. A detailed legal review helps ensure they enter the franchise relationship with eyes wide open.

Are Franchise Agreements Negotiable?

A common misconception among prospective franchisees is that franchise agreements are entirely non-negotiable. While it’s true that many franchisors are reluctant to make sweeping changes, certain provisions can often be discussed—especially when raised by a lawyer who understands the industry. In my practice, I’ve successfully negotiated on matters such as limiting personal guarantees, clarifying ambiguous renewal terms, adjusting territory rights, and softening overly broad termination clauses. The key is knowing what’s reasonable to ask for without jeopardizing the deal, and understanding which terms are typically flexible depending on the size and structure of the franchise system. Even small adjustments can have a significant impact over the life of the agreement.

Can I Review the Franchise Agreement and FDD On My Own?

Legally, yes. You are entitled to review the FDD and the franchise agreement without a lawyer. And at first glance, it may seem like something you can manage on your own. But in my experience, I strongly advise against it. These documents are lengthy, technical, and packed with legal language that can be easy to overlook or misunderstand. They also carry serious legal and financial consequences. Even as a corporate lawyer who regularly advises on franchise matters, it has taken me years to develop the judgment and familiarity required to spot unusual or problematic clauses. I know what’s standard in the industry and what’s not, and that context is critical when evaluating the terms of a franchise agreement. Investing in proper legal advice at this early stage often saves clients from major issues down the line.

How Jahanshahi Law Firm Can Help

At Jahanshahi Law Firm, we regularly assist clients in reviewing Franchise Disclosure Documents, franchise agreements, and all related documents with a careful and strategic eye. We help you understand exactly what you are signing, identify risks and inconsistencies, and ensure the terms align with your expectations and business goals. Whether you’re entering into your first franchise or expanding your portfolio, we provide clear legal advice so you can move forward with confidence. If you’re considering buying a franchise, we’re here to help you make an informed and secure decision.

For more information about franchises, please click here.

For more information about compliance with franchise legislation, read our article on compliance with the Arthur Wishart Act by clicking here.

ABOUT THE AUTHOR:

Shahriar Jahanshahi is a corporate lawyer and founder of Jahanshahi Law Firm, advising startups, growth-stage companies, and investors on complex legal, tax, and strategic matters. His practice focuses on corporate structuring, tax planning, private M&A, franchising, and real estate, with a client base that includes high-net-worth individuals, private lenders, and entrepreneurs. For further information about Shahriar Jahanshahi, click here.